# Buying vs selling, and defined-risk spreads (Options 101, lesson 7 of 10)

Canonical URL: https://mrkts.gg/learn/options/spreads
Last updated: Nov 9, 2026, 9:00 AM ET

> Debit spreads, credit spreads and iron condors: max loss, max gain and breakevens, plus why win rate alone doesn't make a trade good.

What you'll be able to do: Compare long and short premium, and compute max loss, max gain, and breakevens for vertical spreads (debit and credit) and iron condors.

## Buying and selling premium

| Buying premium | Selling premium |
| --- | --- |
| Pay up front | Collect up front |
| Risk is the price paid | Loss can be large |
| Needs a bigger move than the price assumes | Profits if the stock stays away from the strike |

A spread adds a second option to change that trade-off.

## The vertical spread

Buy the 50 call for 1.72 and sell the 55 call for 0.30. You pay 1.42 net, and the short call caps your gain at 55.

*Payoff chart at expiration: long 50 call at 1.72, short 55 call at 0.30. Per position: breakeven 51.42, max gain $358, max loss $142.* Bull call spread: long 50 call at 1.72, short 55 call at 0.30, at expiration. Max loss $142, max gain $358, breakeven 51.42.

1. Net debit: 1.72 − 0.30 = 1.42, or $142.
2. Max loss: the debit, $142.
3. Max gain: width 5.00 − 1.42 = 3.58, or $358.
4. Breakeven: 50 + 1.42 = 51.42.

> **Key idea:** Above 55, the short call loses what the long call gains, so the profit stops.

## Credit spreads

Take a put credit spread on the $50 stock: sell the 50 put for 1.72 and buy the 45 put for 0.22. The long put costs money, so it shrinks the credit to 1.50. In return it caps your loss. You sell the higher strike, so you want the stock to stay above 50.

*Payoff chart at expiration: short 50 put at 1.72, long 45 put at 0.22. Per position: breakeven 48.50, max gain $150, max loss $350.* Put credit spread: short 50 put at 1.72, long 45 put at 0.22, at expiration. Max gain $150, max loss $350, breakeven 48.50.

> **Key idea:** Credit spread: max gain = credit. Max loss = width − credit, not the credit. Here 5.00 − 1.50 = 3.50, or $350.

## The iron condor

An iron condor is a put credit spread plus a call credit spread. On a $100 stock: sell the 90 put and the 110 call, buy the 85 put and the 115 call, for a total credit of 1.50.

*Payoff chart at expiration: long 85 put at 0.40, short 90 put at 1.00, short 110 call at 1.20, long 115 call at 0.30. Per position: breakeven 88.50 and 111.50, max gain $150, max loss $350.* Iron condor 85/90/110/115 for a 1.50 credit, at expiration. Max gain $150, max loss $350, breakevens 88.50 and 111.50.

1. Max gain: the credit, $150.
2. Max loss: (5.00 − 1.50) × 100 = $350.
3. Breakevens: short put − credit = 88.50, and short call + credit = 111.50.

## A high win rate isn't enough

This condor makes $150 or loses $350. How often must it win just to break even?

1. Each win pays $150. Each loss costs $350.
2. Break even when 150 × wins = 350 × losses.
3. That's a win rate of 350 ÷ (150 + 350) = 70%.

> **Watch out:** Common mistake: "It wins 70% of the time, so it's a good trade." At these payoffs, 70% only breaks even.

And a spread defines your worst case, it doesn't remove it. If the stock gaps through both strikes, you take the full max loss.

## Worked example: Three spreads, worked step by step

*Illustrative numbers, not real quotes.*

First, a bull call spread: buy the 50 call at 1.72 and sell the 55 call at 0.30, same expiration.

- Net debit: 1.72 − 0.30 = 1.42, or $142. That is the most you can lose.
- Max gain: width 5.00 − 1.42 = 3.58, or $358, if the stock ends at 55 or higher.
- Breakeven: 50 + 1.42 = 51.42.

| Stock at expiration | P&L per spread |
| --- | --- |
| 45 | −$142 |
| 50 | −$142 |
| 51.42 | $0 |
| 53 | +$158 |
| 55 | +$358 |
| 60 | +$358 |

Second, a put credit spread on the same $50 stock: sell the 50 put at 1.72 and buy the 45 put at 0.22.

- Net credit: 1.72 − 0.22 = 1.50, or $150. That is the most you can make.
- Max loss: width 5.00 − 1.50 = 3.50, or $350, if the stock ends at 45 or lower.
- Breakeven: 50 − 1.50 = 48.50.

| Stock at expiration | P&L per spread |
| --- | --- |
| 40 | −$350 |
| 45 | −$350 |
| 48.50 | $0 |
| 50 | +$150 |
| 55 | +$150 |

Third, an iron condor on a $100 stock: sell the 90 put and the 110 call, and buy the 85 put and the 115 call, for a total credit of 1.50.

| Stock at expiration | P&L per condor |
| --- | --- |
| 80 | −$350 |
| 85 | −$350 |
| 88.50 | $0 |
| 90-110 | +$150 |
| 111.50 | $0 |
| 115 | −$350 |
| 120 | −$350 |

- Max gain is the credit, $150. Max loss is (5.00 − 1.50) × 100 = $350.
- To break even over many trades, this condor has to win 70% of the time, because 350 ÷ (150 + 350) = 70%.

## Practice

The page has 8 practice questions and 5 mastery checks for this lesson, with feedback on each wrong answer: https://mrkts.gg/learn/options/spreads

Next lesson: [Position sizing and max loss](https://mrkts.gg/learn/options/sizing.md)

Education only, not investment advice. Example numbers are illustrative, not real quotes.

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